We should be concerned with skyrocketing HDB prices

http://www.straitstimes.com/BreakingNews/Singapore/Story/STIStory_453762.html

$653k for 4-room HDB flat (works out to $674 psf)

This report of the record breaking sum exchanged for what amounts to public housing is indeed alarming.

Why this is an important issue to take note?

The principle of affordable public housing for everyone

The notion that the government (via HDB) ensures that every Singaporean has a home to call her own is a noble and commendable one. From the onset with HDB's creation, the Ministry of National Development did a wonderful job in developing areas like Kallang, Toa Payoh and Bendemeer in satellite towns. HDB provided affordable homes which are clean and accessible.

Besides this, the wonderful planning that goes into it also ensured transportation (public buses), sanitation (URA and ENV), financial (CPF) and other macro aspects were also similarly dealt with. With the initial years of HDB, we see a transformation of Singapore from a kampong to a modern metropolis of clean and admirable public housing.

Fast forward to 2009, we see HDB venturing into building 'private' housing. We see HDB doing waterfront living. We see HDB selling its houses at market subsidies (which translates to cost plus 'margins that government wants'). We also see HDB operating at huge deficits. Of course, HDB is still supposed to ensure affordable public housing. The government says so. But why does the HDB put its nose all these pots which do not seem to serve its fundamental mission of affordable public housing.

Mis-pricing or Mis-management

What happens to Singaporeans' ability to afford public housing when we witness costs of public housing going 2.5 times after the initial sale of the home to the first set of owners? In the short span of four years (eh, I thought we must hold the HDB flat for at least five years??), the price has risen 2.5 times to over S$600,000.

This fact alone highlights that we have either mis-price the HDB home when it was first sold to the first owners.

Or, that there is a bubble building up in the market. When there is a 250% gain to be had for holding your property for just four years, it is plain that there is something wrong here. The fact that the price for the property was more than S$60,000 than bank valuation means that the buyers are paying in cash S$60,000 over what they must loan/draw from CPF. This sort of money may indicate a loop hole where the buyers are buying into an asset which is clearly not intended for them.

According to the article, the new buyers were an Indonesian PR  and his wife. To put down S$60,000 cash, means that the buyers are unlikely to be within the S$8,000 monthly income ceiling.

The S$8,000 family income ceiling was set for first time buyers. This cap was to ensure that only 'eligibly' less well-off families are given the opportunity to buy 'subsidised housing from the government. But when the secondary market is not similarly 'capped', there is an inflationary effect because choice units can then be bought be wealthier families who cannot qualify for the first round. Valuations made by banks/property agents are pegged to ongoing resale market prices, and this price gap between the first round and second round purchase creates an inflationary momentum for the price to get even higher.

When HDB measures the 'market subsidy' for pricing its public housing, it will then review the prevailing market prices of the units sold and bought in the secondary market. This creates a second wave of inflationary pressure which HDB will then equate as increase value of its property. To the government, this is a form of asset enhancement. Some economists call it inflation, or worse a bubble.

So why do we allow ourselves to have moved so far from the core mission of HDB.

The fallacy of 'upgrading'

Singaporeans are by our nature, very competitive and we struggle to swim upstream all the time.

We like the fact that our house is worth more. We like the fact that our CPF has more money than before. We like to know that our HDB homes are better than our father's HDB home. But is it?

Sure, the value of the property is higher. It probably has a bigger zero at the back.

But think about it, the old four room HDB flat probably has more than 110 square metres. Now, it is probably 10 square metres less (a room no less). In the past, the HDB blocks are build further apart. Look at Sengkang and Punggol, new fangled apartments called Punggol Vista means having four blocks of HDB flats forming a square overlooking a tiny patch of grass, blocking air circulation and view. The older flats were equipped with convenience. If you have garbage, you just walked into your kitchen and you can dump your refuse. Now, you have to take a walk (outside your home).

So what is upgrading actually? Have we improved? The numbers stacked up higher but the quality is so much lower now.

Singaporeans should be mindful. We have a generation of early leaders who were visionary, bold and meticulous. We should be thankful for that.

The new generation in charge of housing and city planning has different objectives. And they probably do not include 'affordable housing' in the same context as before.